Sanjay Badhe is a consultant in the retail and marketing area. He works on projects involving retail , including understanding shopper habits, new retailing concepts and improving store level productivity, for a number of clients, both Indian and international. He has worked in the past at senior level with retail and marketing companies in India as well as outside. He can be contacted at : sanjay.badhe@ymail.com,

It is interesting to observe the strategy adopted by ‘foreign’ retailers entering a new market. Primarily it is about what changes it is willing to make in its method of operations, to meet the requirements of this new market. So it is with IKEA, the Swedish furniture and lifestyle chain that is gearing up to invest megabucks in setting up 25 stores in India, after having made headlines in its attempt to enter the Indian market.

IKEA has to take into account, not only the environmental differences, but other factors too, such as the local shoppers. After all, while as shoppers we may be similar to shoppers around the world, our experiences, knowledge levels, exposure and habits and culture do define us. How do these factors stack up when a retailer such as Ahold or a Best Buy walks into a market?

As such, IKEA applies the same approach globally, undeterred by the failed attempts in the past with the US markets, where it had to eventually relook and re-enter.

For instance, in the Middle East in the early 90’s, where I was involved from the franchisee end when IKEA was looking at the growing Gulf market, it looked a bit like applying Swedish Social Democracy in the sands of Arabia. At the small test store setup close to an expatriate residential area in Dubai, customers consistently asked for home delivery (at a cost), assembly ( at a cost) and , critical to the market a ‘ final price ‘ or discount (never given). Customers grumbled, but the low sales staff to customer ratio, attention to detail in the displays, odd, long Nordic names of the furniture, all seemed to add to the IKEA aura.

When customers realised that the cost of home delivery and assembly would get them another Billy bookcase or Pulang chair, they relented and themselves started carting products home and wielding the famous Allen key to assemble it.

The same happened elsewhere. In Shanghai, the chain developed smaller furniture for smaller Shanghainese apartments, where there initially was a strong focus on the market hall – small gadgets and home accessories. In most newer markets, IKEA’s image changed from being the ‘first furniture for your own apartment’ (as in Europe , where students were the primary buyers), to representing ‘European design’, making it acceptable to the growing middle classes.

What will be the IKEA story in India - the cookie cutter approach with similar stores and products, or a fresh approach to the market and consumer? At face value, the cookie cutter approach is the easiest. From the early days, IKEA has followed the concept that furniture and stores should be unpretentious (no ceilings, self service, large signage), should be easy to choose and select from, and the cost savings in assembly, store design, packaging etc. should be passed on to the consumer, to offer the most affordable furniture.

The key to the IKEA story is cost reduction by standardising design, selling most products in easy-to-carry-and-assemble ‘flat pack’ form, minimal advertising, and a strong dependence on the catalogue that is distributed to the catchment.

The big question is that will this model work for IKEA in India? While there is the dampener of the FDI regulation of 30% local sourcing from SME, the psyche of the Indian buyer is of a consumer who is loath to any DIY (Do It Yourself). Will the Indian buyer see that assembling the product is not only making it more affordable , but also gives a deeper involvement and a sense of pride? (Dan Ariely a leading behavioural economist, has actually coined a term, the ‘IKEA effect’ for service behaviour where the consumer feels involved).

It is likely that IKEA might give the model a twist, as it did in the Middle East, and offer assembly and delivery at a steep price. This would help price conscious consumers overcome inhibitions to DIY, and discover the ease of assembling this furniture. In India it is even possible that an independent service of ‘assemblers’ is formed.

Large stores are another IKEA ‘must have’, which could prove a challenge in India. Typical IKEA stores are larger than 200,000 sqft, with service areas and storage often additional. Though such large spaces could be found in mall properties, which are seeing a correction in rentals, IKEAs tends to prefer stand alone destination stores. Only in the Middle East does IKEA locates stores inside malls, but only because of the need to have an air-conditioned environment, what with outside temperatures over 40° C. However, this is against the ‘democratic‘ shopping experience that Ingvar Kamperad built into the DNA of the organisation, where locations have always been chosen where the maximum number of people can visit , not necessarily malls.

Would IKEA consider mall locations, or locations next to malls (built to suit), where traffic is present? Another option would be to offer ‘boutique’ stores located in city centres as teasers, focusing on innovative and well known products to expose the customers in the Metros to IKEA, and set up lower rental stores located outside the city. In the past, IKEA has used this idea in Manhattan, New York. While not believed to have been very successful there (this could well be due to the fact that larger stores are now in place ), these could be used in India in the missionary sense. But the large store is the key: IKEA prides itself on offering ‘everything under one roof’, a promise only a big box format can make.

The area where possibly some work will be required will be on the image. While awareness is still low (in the younger age group at around 20% is what a branding and image consultant once told me – though much, much higher among the SEC A category of consumer), the perceptions here are strong, as in other emerging markets before IKEA entered them, point to a ‘ fashionable‘ and ‘aspirational’ brand.

The key then would be to market the brand aggressively. Would this work for IKEA? About 70% of IKEA’s marketing budget goes towards, what IKEA believes is their key marketing tool: the annual catalogue. This catalogue (at last count just under 200 million copies worldwide) drives customers to the store. But catalogue based sales have had mixed results in India. While Burlington, a pioneer, has done well in the past, Argos, a catalogue sales retailer which entered India in collaboration with the Shoppers Stop / HyperCity chain of retailers, had to shut shop and pull out.

Perhaps, IKEA would have to change to smaller specific catalogues arranged by category, and use newer media–electronic catalogues, or an online version instead. And will this make IKEA, at least in India, a younger person’s store? But the need is to tap the richer older customer, who isn’t as yet shopping online.

And will the IKEA image still cloak itself in the Swedish imagery it has cultivated so well (Blue and Yellow – the Swedish flag’s colours for the frontage and as key colours in the brand colour palette; unpronounceable Swedish names for the product, Swedish food in the in-store cafes etc.), notwithstanding that China now is one of the leading sourcing hubs and Indian consumers now know Chinese product.

Most importantly, Sweden doesn’t really mean much to most Indian consumers, unlike the US, and Europe. Does the lack of a ‘Sweden perception’ actually make the IKEA concept difficult to sell here? Can IKEA tweak this to be ‘European‘ ( known) , rather than ‘Swedish’ (unknown).

Finally, the value driven Indian consumers, who are extremely price and quality conscious, see furniture as needing to be sturdy and long lasting. The MDF furniture from IKEA would raise guards. Already Malaysia (and Indonesia) has made inroads, into the India market using wood or wood-like / near wood materials, at competitive prices. How will IKEA work with this Indian consumer? Will IKEA eventually be exclusive and not connected to the Indian consumer (a ‘not for me’ syndrome).

However, even if IKEA does score in the value X price equation, but needs to lock in on appropriate products for the Indian consumer. While the’ wood vs. MDF’equation might be worked out, given the ability for IKEA to communicate with the consumer directly (eg. an IKEA store actually had a window display of an IKEA chair being subjected to apparently continuous attacks by a mechanical arm to indicate that it was sturdy enough to take X number of ‘sits’), it is the price X quality equations that need to be looked at. Even if IKEA is able to convince the Indian consumer on product, the price will play a crucial role.

There are interesting examples that point the way for IKEA. The QSR business, where McDonald’s has Indianised the menu with no beef or pork and adopted other customs such as having a hand wash area, is an interesting starting point.

I think what the FMCG majors’ understanding of the Indian consumer provides even more relevant lessons. Cadbury’s and Unilever have developed new products and adapted their existing products to Indian consumer conditions. The detergent washing bar by Unilever, as well as the strong push to substitute ‘mithai’ with chocolates during the festive season by Cadbury’s (by repacking and presenting the product in different, ‘gift friendly’ forms) show a deeper understanding of the consumer in this market. Perhaps IKEA has to listen to the Indian consumer, now that the hurdles of entry seem to be fading.